SA国际传媒

Despite a pandemic that raged around the globe for the better part of the year, the cybersecurity market retained investor interest in 2020 and many in the sector expect next year to be no different.

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鈥淪ecurity is a red hot sector with more and more money pouring into it,鈥� said , managing director at .

Funding numbers remained strong this year, according to SA国际传媒 data. The cybersecurity sector saw more than $8.1 billion invested to date globally this year and nearly $6.3 billion in the U.S. That compares to $7.4 billion globally and $4.7 billion in the U.S. last year.

Large deals in 2020 include Santa Clara, California-based hauling in $340 million in February; Mountain View, California-based raising $267 million in November; Dallas-based closing a $216 million Series B in March; and Minnesota-based announcing a $200 million raise in October.

Merger and acquisition dealmaking in the cybersecurity sector did take a hit, with values dropping from $28.1 billion in 2019 to $13.8 billion at the end of the third quarter this year, according to San Francisco-based financial advisory firm .

Despite the drop in dealmaking, Atherton said he hears from corporate development teams of large companies that they get approached on a daily basis by startups and growing cybersecurity firms interested in strategic dealmaking and partnerships.

Atherton said he expects dealmaking to remain strong in 2021, after it picked up significantly in the second half of the year. More nontraditional buyers could help push the market, he said, pointing to acquiring in August for $775 million as an example.

Where may investors and strategics look to in 2021 when analyzing the cybersecurity landscape? Following are subsectors that seem primed to have escalated interest in the new calendar year:

Analysing risk from the top

The recent SolarWinds hack鈥攚here Russian attackers penetrated several companies鈥� and government agencies鈥� systems through a piece of that company鈥檚 server software鈥攊s yet again another example of the imperfections of cybersecurity.

鈥淚t鈥檚 unfortunate,鈥� said , founding director of Momentum Cyber. 鈥淚t’s shocking, but not surprising, The reality is we are all fighting the same fight, but no one is impervious to attacks.鈥�

, managing director at , said the SolarWinds hack may be an inflection point for the industry to look at how vendors share data.

鈥淰endors must exchange information so risk is clearer,鈥� he said. 鈥淎nd that process should be streamlined.鈥�

While some get excited about new network security tools and endpoint solutions, large third-party vendors provide the necessary infrastructure of organizations’ defenses. Once the full breath of the SolarWinds attack is understood, vendor risk management and companies that allow for that data exchange could see an uptick in interest.

Securing health

The pandemic caused many people to focus on health, and those in cybersecurity were no different.

鈥淭hese ransomware attacks on hospitals are terrifying,鈥� Kinsella said. 鈥淭his area wasn鈥檛 even a focus a few years ago.鈥�

Kinsella said that has slowly changed as attackers have learned to use medical devices themselves that are now connected to networks as virtual backdoors.

Recent years have seen increased interest from buyers looking for IoT security providers, which includes medical device security. Among them was buying for $75 million last year, and being acquired by at a valuation of $1.1 billion.

Large tech companies like also have grown their health care security divisions, said Kinsella, whose firm invested in New York-based medical device security provider in 2018.

Nevertheless, investment in the area lags behind other cybersecurity verticals, but a strong 2021 is a possibility.

鈥淩ight now it’s a decade behind,鈥� Kinsella said, 鈥渂ut I can see interest picking up.鈥�

Kubernetes and containers

The use of containers in building modern applications has grown through recent years, with open-source software platform becoming a popular way to deploy and manage those containers.

鈥淐loud infrastructure security is hot and Kubernetes and container security is just a natural extension,鈥� Boukouris said.

That space already has seen significant dealmaking. Palo Alto Networks bought for $173 million in 2018 and followed that with its acquisition of for $410 million and for an undisclosed amount last year. The cybersecurity giant used that trio to create its cloud security offering Prisma Cloud. Then in April, bought cloud security posture management company for approximately $145 million.

Venture capital also has rolled in. In September, Mountain View, California-based raised a $26.5 million round, while in May, Israel-based startup raised $30 million, and Mountain View, California-based raised a $42 million Series C in the second half of last year.

While the space still is developing, Boukouris said he thinks more money will flow into the area because cloud infrastructure is so hot.

Security services

Regardless of what the next big thing is in cybersecurity, it鈥檚 guaranteed more tools and complexity will come into the space. That means security services鈥攖he unsexy subsector of managing security tools鈥攁lso will remain interesting to investors.

鈥淭here is some great technology out there, but because there鈥檚 so much you need someone to manage it,鈥� Boukouris said. 鈥淭hat鈥檚 why the space is red hot. There is interest from VC and private equity alike.鈥�

Companies like Arctic Wolf, as well as others such as and , which help manage tools and offer security operation center services, continue to attract investor interest as offerings proliferate throughout the sector, Boukouris said.

鈥淭he more tools get complicated, the better services companies need to manage them,鈥� he added.

Looking ahead

Atherton said he expects cybersecurity as a whole will see high single-digit to low double-digit growth in spend next year, with strategics and investors eyeing bigger slices of the pie.

鈥淚 don鈥檛 think you鈥檒l see much of a slowdown in M&A or investment in the sector,鈥� he said 鈥淚t remains very hot.鈥�

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